The Farm and Food System

Chapter 2

Agriculture’s Role in US Economy

What do you consider Agriculture? Agriculture includes:

Family Farms Corporate Farms Credit Organizations Input Suppliers Marketing Firms and Processors Retailers

Agriculture’s Contribution to US Economy

15.8 % of US Labor Force 14% of US Gross Domestic Product

What is GDP? GDP - the total value of goods and

services produced within the US by either foreign or domestic resources.

Farming’s Contribution 3 % of Labor Force 2 % of GNP

Agriculture’s Role in the US Economy

Type of Industry National Output

Employed Labor Force

Farming 2 3Mining and Construction 5 5Manufacturing 17 14Transportation, Communication and utilities 8 5Wholesale and retail trade 16 23Finance, Insurance and real estate 19 6Services 20 29Government (state, local and federal 13 15

Agriculture’s Role in the US Economy In total however, agriculture indirectly

accounts for much of the employment in other sectors.

Agriculture is thus responsible for providing about 21.6 million jobs, constituting 15.8 percent of the total employment in the US.

In addition the farm and food system contributes 14 percent of the nation’s GDP.

Types of Farms in US

Family Farms 86% Partnerships 10% Corporations 4%

30% of Farmland 27% of Product Sales

All others <1%

Farming Facts

Average size of farm in US is 447 acres This number is increasing

Number of farms in US is 2 million This number is decreasing

Number of people living on farms is decreasing and now around 4 million Why is this the case. (In 1920 there used

to be 32 million people living on farms)

Family Farms

Because many of the partnerships and corporations are family organizations, about 96 percent of our farms are really family farms.

Why Incorporate?

Lower cost of transferring wealth Employee benefits tax deductible Management can be separated

from ownership Reduce Liability

Revised Tax Rates (as of 1995) Corporate

Tax Rate Income Level

15 % Taxable income up to $50,000

25 % Incomes between $50,000 and $75,000

34 % Incomes between $75,000 and $100,000

39 % Incomes between $100,000 and $335,000

34 % Incomes between $335,000 and $10 million

35% Incomes between $10 and $15 million

38 % Incomes between $15 million and $18,333,333

35 % Income over $18,333,333

Revised Tax Rates (as of 1996) Individual

Tax Rate Income Level

15 % Taxable income up to $24,000

28 % Incomes between $24,000 and $58,150

31 % Incomes between $58,150 and $121,300

36 % Incomes between $121,300 and $263,750

39.6 % Incomes over $263,750

Economic Size Classes of Farms

Expanding Sector of Agriculture Farms with sales greater than

$100,000 annually Make up 16.7 % of the number of

farms with 343,000 of them Make up 81.9 % of the cash receipts of

all farms Off farm income in this category has

grown from $10,635 in 1980 to $37,392 in 1997

Total of all income is $191,426 Net Income is $52,896 Direct Government Payments

$13,628

Economic Size Classes of Farms (Expanding Sector)

Declining Sector of Agriculture Farms with sales between $20,000 and

$99,999 annually Make up 22.2 % of the number of farms

with 458,000 of them Make up 14.2 % of the cash receipts of all

farms Off farm income in this category has

grown from $9,285 in 1980 to $43,115 in 1997

Economic Size Classes of Farms

Total of all income is $63,396 Net Income is $9,285 Direct Government Payments $4,229

Economic Size Classes of Farms (Declining Sector)

Non Commercial Sector of Agriculture Farms with sales less than $20,000 annually Make up 61.1 % of the number of farms with

1,257,000 of them Make up 3.9 % of the cash receipts of all farms Off farm income in this category has grown

from $16,677 in 1980 to $49,678 in 1997 Average net income per farm is -$1,397

Economic Size Classes of Farms

Total of all income is $48,567 Net Income is -$1397 Direct Government Payments $700

Economic Size Classes of Farms (Non Commercial Sector)

Vertical Integration Vertical integration,

vertical coordination, and contract production are terms that are often used interchangeably

An example of this type of integration might be a wheat farmer buying a flour mill or vice versa.

Farmer Cooperatives

Cooperatives are an organizational structure that is an alternative to an individual proprietorship, partnership or corporation.

A cooperative is a business that is organized, capitalized, and managedby its member-patrons, furnishing and/or marketing goods and servicesto the patrons at cost.

Number, Population and Size of Farms in the US

Year Number of Farms

Farm Population (000)

Average Farm Size (Acres)

US Population on Farms (%)

1920 6,518,000 31,974 147 30.1

1950 5,648,000 23,048 213 15.3

1980 2,439,510 6,051 426 2.7

1998 2,191,510 4,712 435 1.7

The Agribusiness Complex 1997

Farm supplies industry $167 billion Total consumer purchases in US

was $751 billion The farm value of these purchases

was $148 billion This means the total value added

was $603 billion

International Trade

Value of exports in 1998 was $51.8 billion

US trade balance was about $14.7 in the same year. (exports – imports)

Overview of our Economic System

Households

Business Firms

Resource Markets Product Markets

Land, Labor Capital and ManagementMoney

Flow (Wages,Salaries,Interest,Profits,Dividends)

Finished GoodsAnd Services

MoneyFlow(ConsumerExpenditures)

Measuring Output Gross National Product

Is the total value of all finished goods and services produced in the economy within a given time period, such as a year whether these goods and services were produced in the US or overseas.

Gross Domestic ProductIs the total value of goods and services produced within the United States by either foreign or domestic resources.

Calculating GDP and GNP

Stages of Production Product Value at Point of Sale

Value Added

Cotton Farmer $2 $2

Cotton Mill 4 2

Textile Mill 9 5

Shirt Manufacturer 14 5

Wholesaler 16 2

Retail Outlet 20 4

Totals 65 20

Government Policy

Monetary Policy Interest Rates Money Supply

Fiscal Policy Taxes Spending